What is a long short? Learn 2 basic terms in Trader
What is a long short?
If you buy or sell a coin in the future, you are not buying or selling the actual coin. You enter into a futures contract (e.g. BTC, ETH, or any listed coin) – this is an agreement to buy or sell coins at a fixed price at a specific hour. Unlike traditional coin buying, you never own the coin, so if you haven’t closed the order you won’t be able to exit your account. With traditional investing in the cryptocurrency market, you only make money when the coin price goes up. With BTC, ETH, XRP futures … you can make money even when the market is falling. This is roughly known as short selling, which is to sell what you don’t have at a high price and buy at a low price to get it back on the ground and enjoy the difference.
Here’s how it works. There are two basic positions in crypto futures: long and short. A long position consists of agreeing to buy the coin after the contract expires. The short position agrees to sell the coin after the contract expires. With crypto exchanges such as Bitmex, Binance, Okex, all contracts are open-ended, so there is no term. You will end the game if your account is liquidated or if you take profits or losses.
If you think that the price of your coin will be higher in the future than it was at the time of the order, place a long order. If you think the coin price will go down in the future, place a short order.
What is a long position?
With a long (buy) position, investors expect prices to rise. An investor in a long position will benefit from the price increase. A typical coin purchase is buying a crypto asset in a long position.
A long position is a position in which an investor buys an order option. As a result, a long position will benefit from an increase in the price of the underlying asset.
A long position involves buying an order option. The logic behind the long side of the weather follows the same logic behind a long position. A put option increases the value if the underlying asset loses value.
In a long asset buy trade, the potential loss / loss is the purchase price, the lower the purchase price, the higher the profit. You take profits when you reach your goal, don’t wait too long as you have to pay a heavy loan fee every hour.
What is a short position?
A short (sell) position is the exact opposite of a long position. Investors hope and benefit from a decline in the coin. Taking a short position is a little more complicated than buying the asset.
With a short position, the investor hopes to benefit from a decline in the coin price. This is done by borrowing X coins from the exchange and then selling the coins at the current market price. The investor then has an open position for X coins on the exchange, which must be closed in the future. If the price goes down, an investor can buy X coins for less than the total price they previously sold for the same amount of coins. The extra money is the trader’s profit.
The concept of short selling is often difficult to understand for many investors, but it is actually a relatively straightforward process. Let’s look at an example that hopefully will help you make things clearer.
Let’s say you predict that the price of Bitcoin (BTC) will fall in the future, maybe in the next hours or days, so you decide to sell short to take advantage of the expected price decline. Your short sale works like this:
- They put a margin as collateral for the exchange to loan you 1 BTC that they already own. The higher the credit ratio, the greater the possibility of asset liquidation.
- When you get 1 BTC that your wallet lends you, sell it at the current market price of $ 10,000 per coin. Now you are out of coins, but you have $ 10,000 in your account that you received from your 1 BTC buyer ($ 10,000 x 1 = $ 10,000). You have money and you owe the floor 1 BTC.
- Now let’s assume that the price of coins begins to fall as you predicted. A few weeks later, the price of the coin dropped to $ 8,000 per coin. You don’t expect it to go much, if at all, so make up your mind to go short.
- Now buy 1 BTC for $ 8,000 ($ 8,000 x 1 = $ 8,000). You return that 1 BTC to the previously borrowed exchange.
- You made a profit of $ 2,000 on your short trade. You received $ 10,000 when you sold 1 BTC on your borrowed wallet, but then you were able to buy it back 1 BTC for only $ 8,000. Therefore, your profit is calculated as follows: $ 10,000 (received) – $ 8,000 (paid) = $ 2,000 (profit). You will also have to pay an additional hourly interest fee and a 2-way buy and sell order fee. The amount of the fee depends on each floor. Choose an inexpensive and highly liquid floor for trading as the amount of money on your margin is not small.
There are many long and short positions that traders can take. A savvy investor will recognize the many pros and cons of each type of long and short position before attempting to incorporate them into their trading strategy.
Please remember to only trade with the money that you have, in no case do not borrow, if this money is lost it will not affect the well-being of you and your loved ones. There have been many heartbreaking stories about margin trading (leverage), you can win a lot, but losing is definitely more. Only the owner of the land is the one who does not lose. There are many candles that sweep both long and short to death in a single note, then all you can do is scream.